Japan PM mulls food tax suspension ahead of snap election

TOKYO – Japanese Prime Minister Sanae Takaichi is considering a campaign pledge to suspend sales taxes on food ahead of next month’s general election, according to a report by the Mainichi newspaper citing anonymous sources.

Eliminating the 8% tax on food items is expected to cost the government approximately 5 trillion yen ($31.6 billion) in annual revenue. The government and the ruling Liberal Democratic Party (LDP) will evaluate the potential market impact before making a final decision.

Takaichi plans to dissolve parliament this Friday and call for a snap election, likely to be held on Feb. 8. She is seeking a public mandate for her administration's broader spending initiatives.

The proposal follows the formation of a coalition government in October between the LDP and the Japan Innovation Party (Ishin). The two parties previously agreed to consider a two-year exemption on consumption taxes for food and beverages.

Prime Minister Takaichi’s latest proposal represents a calculated political gamble, aimed at securing a popular mandate for an ambitious spending agenda that has already rattled financial markets. While the proposed reduction in food taxes serves as a potent populist tool to court households squeezed by the rising cost of living, the fiscal trade-offs are substantial.

With an estimated ¥5 trillion annual revenue shortfall, the plan threatens to further strain Japan’s fiscal position—already home to the highest debt-to-GDP ratio in the industrialized world. This looming deficit may leave the government with few options: either aggressive cuts to public services or increased sovereign borrowing. The latter carries the risk of further devaluing the yen and triggering broader macroeconomic instability.

For Vietnam, which counts Japan as a top-tier economic partner and its leading provider of Official Development Assistance (ODA), Tokyo’s fiscal trajectory is a matter of strategic concern. A tightening of the Japanese budget could lead to a contraction in ODA outlays. Moreover, any prolonged economic volatility in Japan would likely dampen foreign direct investment (FDI) and weaken bilateral trade, creating significant headwinds for Vietnamese exporters reliant on the Japanese market.